THE ACA REMAINS IN PLACE AFTER BEING STRUCK DOWN BY FEDERAL COURT

THE ACA REMAINS IN PLACE AFTER BEING STRUCK DOWN BY FEDERAL COURT

OVERVIEW

On Dec. 14, 2018, a federal judge ruled
in Texas v. Azar that the entire Affordable Care Act (ACA) is invalid
due to the elimination of the individual mandate penalty in 2019. Following the
ruling, on Dec. 20, 2018, the federal judge issued a stay
and partial
final judgment in the case. As a result, the ACA will remain in place pending appeal. The Department of
Health and Human Services (HHS) also confirmed
that it will continue administering and enforcing all aspects of the ACA.

This lawsuit was filed by 20 states as a result of the
2017 tax
reform law that eliminates the individual mandate penalty. In 2012, the
U.S. Supreme Court upheld the ACA on the basis that the individual mandate is a
valid tax. With the penalty’s elimination, the court in this case ruled that
the ACA is no longer valid under the U.S. Constitution.

ACTION STEPS

This ruling is expected to be
appealed and will likely be taken up by the Supreme Court. As a result, a final
decision is not expected to be made until that time. However, the White House
announced that the ACA will remain in
place pending appeal.

Background

The ACA imposes an “individual mandate” beginning in 2014,
which requires most individuals to obtain acceptable health insurance coverage
for themselves and their family members or pay a penalty. In 2011, a number of
lawsuits were filed challenging the constitutionality of this individual
mandate provision.

In 2012, the U.S. Supreme Court upheld the constitutionality
of the ACA in its entirety, ruling that Congress acted within its
constitutional authority when enacting the individual mandate. The Court agreed
that, while Congress could not use its power to regulate commerce between
states to require individuals to buy health insurance, it could impose a tax
penalty using its tax power for
individuals who refuse to buy health insurance.

However, a 2017 tax reform bill, called the Tax Cuts and
Jobs Act, reduced the ACA’s individual mandate penalty to zero, effective
beginning in 2019. As a result, beginning in 2019, individuals will no longer
be penalized for failing to obtain acceptable health insurance coverage.

Texas v. United States

Following the tax reform law’s enactment, 20
Republican-controlled states filed a lawsuit again challenging the ACA’s
constitutionality. The plaintiffs, first, argued that the individual mandate
can no longer be considered a valid tax, since there will no longer be any
revenue generated by the provision.

In addition, in its 2012 ruling, the Supreme Court indicated
(and both parties agreed) that the individual mandate is an essential element
of the ACA, and that the remainder of the law could not stand without it. As a
result, the plaintiffs argued that the elimination of the individual mandate penalty
rendered the remainder of the ACA unconstitutional.

The U.S. Justice Department chose not to fully defend the
ACA in court and, instead, 16 Democratic-controlled states intervened to defend
the law.

Federal Court Ruling

In his ruling, Judge Reed O’Connor ultimately agreed with
the plaintiffs, determining that the individual mandate can no longer be
considered a valid exercise of Congressional tax power. According to the court,
“[u]nder the law as it now stands, the individual mandate no longer ‘triggers a
tax’ beginning in 2019.” As a result, the
court ruled that “the individual mandate, unmoored from a tax, is
unconstitutional.”

Because the court determined that the individual mandate is no longer valid, it now had to determine whether the provision is “severable” from the remainder of the law (meaning whether other portions of the ACA can remain in place or whether the entire law is invalid without the individual mandate). In determining whether the remainder of the law could stand without the individual mandate, the court pointed out that “Congress stated three separate times that the individual mandate is essential to the ACA … [and that] the absence of the individual mandate would ‘undercut’ its ‘regulation of the health insurance market.’ Thirteen different times, Congress explained how the individual mandate stood as the keystone of the ACA … ‘together with the other provisions’ [the individual mandate] allowed the ACA to function as Congress intended.” As a result, the court determined that the individual mandate could not be severed, making the ACA invalid in its entirety.

Impact of the Federal Court Ruling

Judge O’Conner’s ruling left many questions as to the
current state of the ACA, because it did not order for anything to be done or
stay the ruling pending appeal. However, on Dec. 20, 2018, the Judge O’Conner
issued a stay and partial final judgment in the case, confirming that the ACA
will remain in place pending appeal. In addition, this ruling is expected to be
appealed, and the White House announced that the ACA will remain in place until
a final decision is made. On Dec. 17, 2018, HHS also confirmed that it will
continue administering and enforcing all aspects of the ACA. Many industry
experts anticipate that the Supreme Court will likely take up the case, which
means that a final decision will not be made until that time.

While these appeals are pending, all existing ACA provisions
will continue to be applicable and enforced. Although the individual mandate
penalty will be reduced to zero beginning in 2019, employers and individuals
must continue to comply with all other applicable ACA requirements. This ruling
does not impact the 2019 Exchange enrollment, the ACA’s employer shared
responsibility (pay or play) penalties and related reporting requirements, or
any other applicable ACA requirement.

This ACA Compliance Bulletin is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice.